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Comiskey Fence Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $378,000 in additional credit sales,
Comiskey Fence Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $378,000 in additional credit sales, 15 percent are likely to be uncollectible. The company will also incur $17,300 in additional collection expense. Production and marketing costs represent 70 percent of sales. The firm is in a 30 percent tax bracket and has a receivables turnover of four times. No other asset buildup will be required to service the new customers. The firm has a 8 percent desired return. (a-1) Calculate the incremental income after taxes. (Omit the "$" sign in your response.) Incremental income after taxes $ (a-2) Calculate the return on incremental investment. (Round your answer to 2 decimal places.Omit the "%" sign in your response.) Return on incremental investment % (a-3) Should Comiskey Fence Co. extend credit to these customers? Yes No (b-1) Calculate the incremental income after taxes if 18 percent of the new sales prove uncollectible. (Omit the "$" sign in your response.) Incremental income after taxes $ (b-2) Calculate the return on incremental investment if 18 percent of the new sales prove uncollectible. (Round your answer to 2 decimal places.Omit the "%" sign in your response.) Return on incremental investment % (b-3) Should credit be extended if 18 percent of the new sales prove uncollectible? Yes No (c-1) Calculate the return on incremental investment if the receivables turnover drops to 2.0, and 15 percent of the accounts are uncollectible (as in part a)? (Round your answer to 2 decimal places.Omit the "%" sign in your response.) Return on incremental investment % (c-2) Should credit be extended if the receivables turnover drops to 2.0, and 15 percent of the accounts are uncollectible (as in part a )? No Yes
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